Is Shared Ownership Worth It?

The Shared Ownership scheme is a useful way to get onto the property ladder if you’re finding it difficult to buy a house by yourself. However, there are advantages and disadvantages to the scheme you should consider before making a decision.

Your monthly repayments will likely be cheaper than if you had an outright mortgage. But as most Shared Ownership homes are leasehold, you’re technically still a tenant and must pay rent on top of your monthly repayments.

If you’re considering getting a Shared Ownership mortgage, we’ll go through the pros and cons of the scheme to help you decide whether it’s the right option for you.

What is Shared Ownership?

Shared Ownership is a housing scheme that allows you to buy a share of a property (usually between 25% and 75%) and pay rent on the remaining share, which a housing association owns. It’s aimed at first-time buyers, in particular, those who are struggling to get on the property ladder with an outright mortgage.

You can buy more shares in the property over time, the process is known as ‘staircasing’, and potentially own 100% of the property. All Shared Ownership properties are leasehold, with new builds, existing properties and flats eligible for the scheme.

Check whether you’re eligible for Shared Ownership before you apply for a mortgage.

What are the advantages of Shared Ownership?

Getting a Shared Ownership mortgage offers several advantages, particularly for those who find entering the housing market challenging due to financial constraints. Here are some of the biggest benefits:

Lower deposit requirements

If you’re struggling to build a large deposit, Shared Ownership offers an easy step onto the property leader for those with a small deposit. Since you’re only purchasing a portion of the property, the deposit required is based on the share you are buying, not the full market value.

This can lower the barrier to entry for homeownership, making it accessible even to buyers with limited savings. With some lenders, you might be able to put down a 5% deposit, as this is just the portion you’re buying not the full property value.

It’s not out of the question to get a no deposit Shared Ownership mortgage, but this is rare.

Affordability

The structure of Shared Ownership — buying a part of the property (typically between 25% and 75%) and renting the rest — reduces the affordability of the mortgage, lowering initial buying costs and monthly payments.

The rent paid on the remaining share is usually set at an affordable rate, below the market level. When combined with the mortgage, this can often be cheaper than renting a comparable property privately.

Staircasing

Shared Ownership allows you to buy additional shares in your home over time, known as ‘staircasing’. This means you can start with what’s financially manageable and increase your equity stake as your financial situation improves.

Each time you buy more shares, you decrease the rent you pay, moving closer to full ownership.

Lower monthly costs

A big benefit of Shared Ownership is that your monthly repayments are normally lower than if you had an outright mortgage or were renting. Although you have to pay rent on the portion of the property you don’t own, this is often below market value.

Access to better properties

Through Shared Ownership, you can access homes in desirable areas that might otherwise be unaffordable if you purchased outright. This scheme often includes new-build properties, many of which are Shared Ownership only, that come with the added benefits of modern amenities and lower maintenance costs.

Security of tenure

Unlike traditional renting, Shared Ownership gives you a mortgage on the part you own and a lease on the part you rent, providing more stability and security of tenure.

As long as you keep up with mortgage and rent payments, you can live in the property for a prolonged period or until you decide to sell your share and move on.

Capital gains

As a part-owner of the property, you benefit from any increase in the value of the home proportionate to the share you own. If the property’s market value increases, the value of your share increases as well.

This can result in significant capital gains when you buy more shares or sell your stake, especially in a rising property market.

What are the disadvantages of Shared Ownership?

Shared Ownership schemes, while offering several benefits, also come with a range of disadvantages you should consider before lodging an application:

Partial ownership

One of the main drawbacks of Shared Ownership is that you do not own the entire property outright initially. You own a share and pay rent on the remainder, which means you are still a tenant for a portion of your home.

This partial ownership can complicate things like renovations and if you want to sell the property.

Difficulty selling

When you decide to sell your share of the property, the process can be more complex than selling a wholly owned property.

The housing association has the ‘right of first refusal’ to buy it back or find a buyer, which can limit your control over the sale and potentially extend the time it takes to sell. If you’re looking to move into a new home as quickly as possible, this can slow down the process.

Staircasing Limitations

Although staircasing allows you to increase your share of the property, it can be costly. The cost of additional shares is based on the current market value of the property, so if the property’s value has increased, the shares will be more expensive.

Some housing associations cap how much you can staircase on a property, which can prevent full ownership.

Rent increases

The rent portion can increase, typically linked to a formula outlined in your lease. These increases are usually pegged to inflation, which can lead to higher living costs over time, potentially eroding some of the affordability benefits of Shared Ownership.

No rents or sub-lets

You’re not allowed to rent or sub-let a Shared Ownership property, and you are required to live in the property as your main residence. This is due to the scheme being government-funded to encourage people into homeownership.

If you’re looking to buy-to-let, it’s better to look at other properties, as the inflexibility of the rules makes them inappropriate for landlords looking to rent out properties.

Maintenance and service charges

As a shared owner, you are often responsible for 100% of the maintenance and repair costs of the property, despite only owning a part of it. You might have to pay service charges for communal areas and services, which can be high.

Equity risk

If the property market experiences a downturn, you could find yourself in negative equity for the portion of the home you own. You will still need to pay rent on the remaining share, which does not decrease with market changes.

Is Shared Ownership worth it?

Shared Ownership is worth it if you’re struggling to get onto the property ladder, as it provides a clear path to homeownership. You may only own 25% to 75% of the property, but this can be increased to 100% over time. If you’re struggling to build a large deposit, Shared Ownership is a good option to consider.

However, the limitations on selling, staircasing, and inability to rent out the property mean it may not suit everyone, especially those looking for more flexibility or investment opportunities in their property purchase.

How a mortgage broker can help

If you’re considering getting a Shared Ownership mortgage, speaking to a mortgage broker will help you understand whether it’s the right decision for you and what your borrowing options are.

By using our free broker-matching service, you can find a mortgage advisor who is the right fit for you. We can quickly assess your needs, circumstances and match that information with a broker who has a strong track record securing Shared Ownership mortgages for people just like you.

With our broker matching service, we’ll assess your circumstances and match you with a broker who has a comprehensive understanding of this market and which lender is right for you. To get matched with your ideal broker, call 0808 189 2301 or enquire online.